ProVenture's Mat - Hit by Volcano

We have all got our own volcano stories to tell. Some have been directly affected, business people and holiday makers across the world, those going to family events and funerals and lets not forget the poor Icelanders who had to evacuate their homes sharpish before being treated to a real fireworks display. My favourite image is of the businessmen who were stripped of any dignity at the ports attempting to get to England. As the ferries have a strict no foot passenger rule, they had to make it up the ramps on a vehicle. Children's bikes were the decided weapon of choice to cunningly get around this rule. The vision of a line of Dragon's den types panting furiously up the ramp on a Raleigh Tomahawk is one to tuck away in a safe place in our Volcano-memoires. Hell, even the leafier parts of North London have been hit, with only 4 types of fresh olives now being available in their local garage, the imports of fresh goods hitting us all.

My own plight has been fairly benign, being 'stranded' in Leipzig whilst I prepare some travel plans to get home and assist my [lovely] wife apply camoline lotion to our 2 spotty kids who have kindly contracted chickenpox. So what to do? It's "Volcano Sunday" and Sundays are very special in Germany. Not for religious reasons you understand. No, their churches are as empty as anywhere in the developed world [or is America developed?]. Literally nothing moves on Sunday. Not trucks on the autobahn. They all have to put their handbrakes on where they are at midnight on Saturday. Pity the Polish truckies who mis-time their toilet stops from Madrid and find themselves 10km from the border, unable to see their families until at least Monday 00:00hrs. Well, you could always go shopping? Not here mate. The nearest shop open is Ramsgate. Think Christmas Day once a week, without the family, food, fun and presents. However reluctant to move their limbs on a Sunday, the Germans are a civilised people. And the Germans, being a civilised people, have set up an assistance programme whilst businessmen such as me are stuck in their [sunny] country, as a result of the volcano. The system involves a set of vouchers being issued, which can be traded for essential goods. The vouchers I have come across so far are known simply as '1.80 Euro' and '2.50 Euro' and can be traded freely for fine locally-brewed pils, small and large respectively. So far I have restricted myself to trading the '2.50 Euro' tokens, my way of trying to reduce the burden on the bar staff involved. As long as the volcano stops spouting before the London Olympics, I shall have enough tokens as long I apply a strict ration of 10 per day. And 15 at the weekends.

So, the way I shall remember my 'volcano' will be that I was able to get the time to look more reflectively at the city of Leipzig and discover its charms, business and otherwise, all over again.

I am genuine when I say that I feel truly privileged to do the job I do, as a property consultant. I meet some interesting and creative people, view some unique investments and work with perhaps the best team of professionals you could put together. This privilege extends to the area in which we operate. Quite simply, we at ProVenture are yield investors and help like-minded investors achieve their objectives. Finding truly exciting markets to operate in, with yields of 10%+ and efficient finance in place is a rarity. In the city of Leipzig we are in a sweet shop, so to speak. Across the city, investors of all colours, be they buy and hold, developers or speculators, can find something interesting and comparable to anything in the developed world in terms of potential. So it is a "hot spot" you would say. And then, thanks to the volcano, I find myself within the epicentre [aren't they earthquakes?] of the hot spot, the west of Leipzig. This morning I decided to go out armed with camera and shoot some photos and videos of some of my favourite locations in this part of town. For enjoyment, and for investors unaware of the area, to share my opinions. This afternoon, burning token after token, I am tapping this to you.

So, what makes up this area of interest and what differentiates it from the rest of the city? Broadly speaking, the area of concern is made up of the areas Schleussig, Plagwitz, Lindenau and Kleinzschocer [the last being a "thank you and good night" on a scrabble evening]. Each location has its own story and each will appeal to a variety of investors. But it really is here where the action is in the city.

It makes sense to cover Schluessig first, being that it is the closest to the city centre and the one that has gentrified most rapidly of late. Extending like a thin finger to the west of the Clara Zetkin Park, Schluessig is the usual collection of fine period apartment buildings that the city generally enjoys. Its runaway success has been due to 2 factors. Firstly, the pricing out of tenants across the park in the area of Sudvorstadt, the first region to gentrify after the collapse of the Iron Curtain. And secondly, you perhaps have guessed, its proximity to the popular parkland that extends through this part of the city. In the 3 years that ProVenture have been working in Leipzig, we have noticed a sharp increase in prices, both sales and rentals as young families and professionals flock into the restricted housing stock. Perhaps a rent of 300 Euro per month would get you a good 75 sqm apartment 3-5 years ago. Now expect to pay 500 Eur and up. During a fairly flat period in sales prices in Leipzig, price for housing has slavishly kept pace with rents and rental yields. So these have also increased some 50% or so during this period of flat capital growth in general. A smart buy. So who would buy here now, or is the party over? For investors looking for strong rental demand and safety, it really doesn't get better than this, within the types of yields we market. Good deals are still to be found for property in the 500,000 Euro and up bracket. Quite simply, there are fewer investors up there and so demand weakens. Good deals in this area would equate to an 8-9% yield, depending on property location and the type of units it comprises.

An example of this is the fine period building below at 1.35MEUR, and a current yield of 9%:

Ref: PV231 - Two buidings in Schleussig
	Price: 1,350,000 €
	Type: Residential
	City: Leipzig
	Potential Yield: 10%
	Approx. Size: 1594 sqm
Two buildings presented to a very high standard 22 units overall.

Moving south and west from here takes us to Kleinzschocher, a region I spell differently each time. This large region to the south west of the city was formerly characterised by a large railway depot used for cargo out of the former industrial heartland of Germany. There railways are now long closed and the area is beginning to change its appearance and establish itself as an area which offers good value rents in some very attractive classical style property. This area has proven very attractive to yield-driven investors over the past 2 years, and ProVenture have sold most property in this area. The rent of a typical 2 room, 50 Sqm apartment renting for 200-225 Eur net per month and typical yields for investors tend to range from 9-11% net. Some streets are not so easy on the eye, with a higher proportion of unrefurbished buildings, but then many streets are as elegant as anywhere in town. The number of builders active in this area gives some clue about the likely direction of travel.

An example property, this 10-flatted house recently going under offer at 255TEUR @ 10% yield:

Moving firmly back to the 'W' on the compass brings us to the area of Plagwitz, and I confess my favourite area in town. It is mainly here I took my camera for a walk today. Plagwitz is an unlikely area to be top of the investment trumps, being formally the most industrialised part of town in the early 20th Century. Huge cotton mills and other signs of a time gone by lie empty and forbidding. But, it was this part of town that wealthy industrialists inhabited and they left behind them some of the finest buildings in the city. On top of this, the empty factories they left alongside the shipping canal are now being turned into loft apartments, artist workshops and cafes and give a unique feel to this part of town. There is a real community feeling in the area and you feel there is great potential to be the next "big story". Whilst not being the very cheapest part of town in which to invest, perhaps 500-650 Euro per sqm will still buy a well-renovated building in the centre of this exciting region. This price tag is to be taken into context. There are readers of this in London or Zurich who perhaps pay more for new carpet than this, and so need to apply a different metric. For property professionals, this price level equates to 25,000 Euro for a typical 50 sqm apartment. Seems good value to even the hardiest investor, if the location is really that good.. What about yields? It would be typical to buy off a yield in the 8-11% bracket, depending on property location and condition. What makes the area interesting is the upside whilst you hold your income producing investment. Just as occurred in Schleussig 3 years ago, young families are moving in and so are professionals. To verify this claim, I need to look at the commercial units to the left and right of the Theatre Cafe where I am trading my tokens to see what has happened in the last 2 years. An old junk shop has become a fine wine depot, offering wine and cheese tastings on Thursdays [that should save a token or 2]. Next to this, opening since I was here in March, is a wine and tapas bar. Looks worth a visit. Across the street, and another old junk shop has been transformed into a ladies boutique, the clothes being designed, manufactured and sold there. Prices start at 300 Euro for a pair of trousers. That's a lot of tokens. And next door, a haunt for ner-do-wells last year, is a photographic studio that stages exhibitions that are attended by professionals from all over the world. These outlets lie cheek-by-jowl with artist studios and workshops, often subsidised by the government. Yes, there are still some boarded up properties and yes the grafitti artists are still very busy at night. But the development is obvious. A fine period example of the area, 9 flats and 9.5% yield was sold quickly for 450,000 Euro:

Finally, a lazy stroll north from buzzing Plagwitz takes you directly into the very large district of Lindenau. This sub district of Leipzig has been steadily growing over the past 15 years, but remains one of the less affluent parts of town. From a tourist perspective, there is nothing to draw you here and no sights to see. Indeed, Lindenau's main streets can be fairly depressing, especially in the evening. For the yield investor, there is work to do in the region! Growing from a low base, the region initially attracted price-sensitive tenants to the area and vacancy in the apartment blocks began to decrease. Now, Lindenau whilst still very much working class in its roots, supports rental demand well for renters who like the proximity to the centre, its own commercial centre, theatre and cinemas and also access to nearby parklands. The rent of a typical 2 room, 50 Sqm apartment renting for 200-225 Eur net per month and typical yields for investors tend to range from 9-14% net. The population is set to increase by up to 15% between 2006-2012, further supporting tenancy in this area. But there is no free lunch over here. Investors should really do their homework as the area has many different faces, and some some clearer potential than others. Perhaps, the most well-supported parts of town are Alt Lindenau to the north and the south Lindenau, on the borders with Plagwitz. Alt Lindenau has some splendid period property, and most streets are fully refurbished and tenanted to good quality renters. Down near the border with Plagwitz, there are slightly more properties left to refurbish, but renting is bouyant. The area where homework is really required is in the centre of Lindenau, around the Luetzner Strasse say, and Neu Lindenau. We move firmly from "working class" to "not working at all class" ie folk who are content with nipping down to Lidl each morning to collect their daily crate of unbranded beer, and see the day happily away in the courtyard. It marvels me as to how the working Germans don't harbour a stronger resentment for subsidising the unemployed to holiday in places like Lindenau for their adult lives and live off their tax take. And believe me, some of these guys live well. You will see more barbeques in this area, than in any other, while the workers from Schleussig slave til late so Lindenau can get the briquettes lit early. Am I being too harsh? Of course scenes of countless uncollared dogs, semi-naked children playing catch with empty beer bottles and, I swear, big signs saying "Landlord Fuck Off" [in English] do not characterise all property in this area. There are some real gems, and with the recent improvements to the Lindeau markt and its proximity to the very tip of the Clara Zetkin Park, the area should improve nicely in the coming years. A great area for investment, but walk the ground time and time again.

A final example, this property which needs a refurb in some of the 18 units priced at 290 Euro, and will deliver a near 15% yield when complete (including refurb costs):

So, the volcano is still erupting, and as my invite to a barbeque at Lindenau hasn't seemed to have come through, I will continue exchanging tokens with the pleasant people of Plagwitz. Thank you Iceland for giving me the time to explore this area once more at a slower pace than usual.

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